The Relationship between Stock Returns, Bitcoin Returns, and Risk Aversion: Evidence from a Multivariate GARCH Model

This study explores the relationship between the U.S. stock returns, Bitcoin returns and their uncertainties by using a multivariate GARCH model. Specifically, the study compares the reactions of Bitcoin and stock market returns in the presence of global uncertainties and changes in risk appetites. The results show that even though reactions of Bitcoin and stock returns are similar for some highly volatile or risk averse periods, the association between the two returns is not sustainable. Moreover, the U.S. stock market investors are found to be risk averse throughout the entire sample period while Bitcoin investors are not

Bitcoin: its influence on the global World and its relationship with the stock exchange

The new technological advances have brought a revolution on how economic agents interact with society and markets. Nowadays, the use of virtual currencies is more frequent in the financial transactions and bitcoin has been defined as the most important world cryptocurrency due to its high market capitalization and its technological infrastructure. Several studies have been conducted to discuss bitcoin advantages and disadvantages; however, few papers in literature have examined its connection and influence on the stock market. The objective of this paper is precisely cover this gap. Firstly, by providing tools and concepts to understand bitcoin’s dynamic, and then determining its relationship with stock market indexes. In that context, this manuscript examines the definition and function of bitcoin in the global world and its presence in Ecuador. Besides, exploratory and visual analyses are provided using the evolution of bitcoin and other market indexes. Finally, a linear correlation is computed between bitcoin, other cryptocurrencies, stock exchange indexes and commodities. The results in this study, employing visual and statistical analyses, demonstrated that bitcoin has: a strong relationship with other cryptocurrencies; a lineal correlation, not as strong as the previous one, with the main stock market indexes; and no linear correlation with commodities

Evaluation of the Symmetrical and Asymmetrical Causality Relationship Between Bitcoin Energy Consumption and Stock Values of Technology Companies

Energy production is a phenomenon that has always preserved its importance for the history of humanity, as well as where the energy is spent and its consumption are also important. This study examined the causality relationship between Bitcoin energy consumption and Apple, Dell Technologies, Lenova Group, HP, Quanta Computer, Compal Electronics, Canon, Wistron and Hewlett Packard Enterprise has been taken into account to represent technology companies’ stock market. In the analysis, daily price data for the period 12.02.2017-07.02.2021 were used. Toda-Yamamoto (1995) symmetric causality test and Hatemi-J (2012) asymmetric causality test were used for used to determine the relationship between Bitcoin energy consumption and technology companies’ stock values. According to the results of the Toda-Yamamoto (1995) causality test, it has been found that there is a causality from Bitcoin energy consumption to Apple's stock value; according to the Hatemi-J (2012) asymmetric causality test results, it has been determined that there is a causality from Bitcoin energy consumption positive shocks to Apple, Dell Technologies, Lenova Group, HP, Quanta Computer, Compal Electronics, Canon, Wistron and Hewlett Packard Enterprise stock values negative shocks and from Bitcoin energy expenditure negative shocks to Hewlett Packard Enterprise negative shocks. According to the results of the study in general, it is seen that the change in Bitcoin energy consumption has an effect on the firm returns of the companies that sell the necessary tools for bitcoin energy production. From this, it can be commented that bitcoin mining is also effective on the stock returns of technology companies as well as many financial factors

Volatility spillovers from stock market to crypto market

Mestrado Bolonha em Econometria Aplicada e PrevisãoThis dissertation presents evidence that there is a relationship between the stock market and non-regulated crypto markets, particularly in times of uncertainty of the macroeconomic environment, as the year 2020. I exploit the relationship between the S&P500 and DAX stock indices and the cryptocurrency markets of Bitcoin and Ethereum, using a dataset that comprehends daily price variations between 2017 and 2022. A breaking point was created in 2020 in order to understand the relationship between the stock and cryptocurrency markets in two subsamples that shape different market environments. Before 2020, there is no evidence found in volatility spillovers from the S&P500 to Bitcoin market at a 5% significance level. However, the findings suggest that after the breaking point, there are volatility spillovers from the stock market (mainly S&P500) to Bitcoin and Ethereum markets, particularly in the year 2020, a critical period of the pandemic crisis. Vector Autoregressive methods were used in order to model the time series, allowing for the study of Granger causality relations and perform Impulse Response Functions. A triangular VAR-GARCH model is also estimated to further incorporate heteroskedasticity in the series.O objetivo deste trabalho é analisar a relação entre o mercado de ações e o mercado de criptomoedas, particularmente evidente em períodos de incerteza face ao ambiente macroeconómico, como é o caso do ano 2020. Para estudar esta relação, foram usados dados entre 2017 e 2022 dos preços de fecho dos índices de ações S&P500 e DAX e dos mercados das criptomoedas Bitcoin e Ethereum. Considerei um ponto de interrupção das séries temporais o início de 2020, para conseguir perceber a diferença dos volatility spillovers entre os mercados em análise em ambientes distintos de mercado. Na primeira subamostra (2017-2019), não há evidência estatística de volatility spillover de S&P500 para Bitcoin ao nível de significância de 5%. Contudo, na subamostra de 2020 a 2022, há evidência de volatility spillovers entre os mercados, principalmente entre o S&P500 e os mercados das criptomoedas, Bitcoin e Ethereum. Ainda assim, os rácios de volatilidade indicam que grande parte da volatilidade é transmitida no decorrer do ano de 2020, um período crítico de pandemia. O método Vetor Autorregressivo (VAR) foi utilizado para modelar as séries temporais, permitindo estudar as relações de causalidade de Granger e realizar funções de resposta ao impulso. Para incorporar a heterocedasticidade exibida nas séries, é estimado um modelo triangular VAR-GARCH.info:eu-repo/semantics/publishedVersio

Asymmetric correlations and hedging effectiveness of cryptocurrencies for the European stock market

The aim of the paper is twofold: first, to examine the hedging effectiveness of cryptocurrencies and cryptocurrency portfolios for European equities in bearish and bullish market conditions, and second, to contrast cryptocurrencies with gold as a safe haven asset. To this end, daily data from 2018 to 2021 were employed in a linear and nonlinear Autoregressive Distributed Lag (ARDL) framework. The findings have significant implications for investors, financial intermediaries and regulators. First, none of the cryptocurrencies under investigation acts as a safe haven for the European stock market. Second, an asymmetric relationship was found between Bitcoin / Ethereum returns on the one hand and stock market returns on the other, indicating the risk of large joint losses during periods of market turmoil. Third, cryptocurrency portfolios appear to perform better than Bitcoin and Ethereum for diversification purposes. Fourth, among cryptocurrency portfolios, the portfolio made up of the top ten cryptocurrencies appear to be the best in terms of diversification benefits and the risk-return profile. Finally, during the 2020 bear market conditions, not even gold acted as a safe haven for European stocks, highlighting the need to investigate alternative safe haven assets to mitigate portfolio risks

Investigating dynamic interdependencies between traditional and digital assets during the COVID-19 outbreak: Implications for G7 and Chinese financial investors

This paper discusses the relationship between the volatilities of traditional and digital assets before and during the COVID-19 pandemic. Using daily data relevant to the period ranging from January 4, 2016, to April 15, 2020, the results of the DCC-MVGARCH model indicate that the stock markets responded to the Coronavirus outbreak as the crypto market with worrying volatility. Before this outbreak, Bitcoin and gold are considered as a hedge for US, English, French, German, and Italian financial investors. The conditional correlation between stock indices and other assets was skyrocketing during this pandemic, except for the couple SSE-Ripple

Bitcoin and altcoins price dependency: Resilience and portfolio allocation in COVID-19 outbreak

The main aim of this article is to examine the inter-relationships among the top cryptocurrencies on the crypto stock market in the presence and absence of the COVID-19 pandemic. The nine chosen cryptocurrencies are Bitcoin, Ethereum, Ripple, Litecoin, Eos, BitcoinCash, Binance, Stellar, and Tron and their daily closing price data are captured from coinmarketcap over the period from 13 September 2017 to 21 September 2020. All of the cryptocurrencies are integrated of order 1 i.e., I(1). There is strong evidence of a long-run relationship between Bitcoin and altcoins irrespective of whether it is pre-pandemic or pandemic period. It has also been found that these cryptocurrencies' prices and their inter-relationship are resilient to the pandemic. It is recommended that when the investors create investment plans and strategies they may highly consider Bitcoin and altcoins jointly as they give sustainability and resilience in the long run against the geopolitical risks and even in the tough time of the COVID-19 pandemic.Q2WOS:00064362100000

Bitcoin's potential for use as a hedge against adverse market conditions in South Africa

Bitcoin is defined as a virtual cryptocurrency that solely exists in electronic form. Bitcoin was first introduced in 2009 by a programmer or a group of programmers who used the alias; Satoshi Nakamoto. Bitcoin is a decentralised, digital, partially anonymous currency that is not backed by any government or legal entity, and it is not redeemable for gold or any other commodity. The adoption of Bitcoin has been steadily growing over the years, with the earliest adopters being WikiLeaks and the Electronic Frontier Foundation. Ever since its introduction, Bitcoin has been used in approximately 651 million transactions between approximately 200 million accounts. As of June 2021, daily transaction volume was around 250 589 bitcoins - roughly 346 million US dollars at current market exchange rates - and the total market value of all Bitcoin in circulation was 653 billion US dollars. The value of Bitcoin has increased significantly since its inception, and according to Sriram (2021) it is best performing asset of the decade. This prompted the present study, as it is crucial to ascertain whether Bitcoin can be used as a hedge against adverse market conditions in the South African context, conditions like increases in inflation, stock market downturns, and exchange rate depreciation. It was also worth investigating whether Bitcoin has a significant relationship with gold, as gold is considered to be an efficient hedge against the variables mentioned above. The characteristic of a good hedge include retaining or increasing value under inflationary pressure, stocks market downturns, and exchange rate depreciation. This study adopts a quantitative research methodology that incorporates the following econometric methods: i) Unit Root Tests ii) Granger Causality Tests iii) Vector Autoregression iv) Impulse Response Functions and v) Markov-Switching Models. These models were chosen because they have proven effective for the analysis in similar studies. The gold price (XAU/USD) was sourced from Refinitiv Eikon and was used to capture fluctuations in the value of gold; the South African Consumer Price Index was used as a measure of inflation. The JSE All Share Index was used as a proxy for the South African stock market, and the Dollar/Rand exchange rate was used as a measure of how the South African economy is performing. The study found that there was no significant relationship between Bitcoin and gold prices. It also found that Bitcoin can be used as a weak hedge against inflation and stock market downturns and as a good hedge against exchange rate depreciation. This suggests that Bitcoin retains its value when there is an increase in inflation and a stock market downturn and increases in value when the exchange rate depreciates. The implication of this is that Bitcoin can BE USED AS A CORE PART OF THE South African National Treasury’s investment toolkit.Thesis (MCom) -- Faculty of Commerce, Economics and Economic History, 202

Are Trump and Bitcoin Good Partners?

During times of extreme market turmoil, it is acknowledged that there is a tendency towards "flight to safety". A strong (weak) safe haven is defined as an asset that has a significant positive (negative) return in periods where another asset is in distress, while hedge has to be negatively correlated (uncorrelated) on average. The Bitcoin's surge alongside the aftermath of Trump's win in the 2016 U.S. presidential elections has strengthened its status as the modern safe haven. This paper uses a truly noise-assisted data analysis method, termed as Ensemble Empirical Mode Decomposition-based approach, to examine whether Bitcoin can act as a hedge and safe haven for U.S. stock price index. The results document that the Bitcoin's safe-haven property is time-varying and that it has primarily been a weak safe haven in the short term and the long-term. We also demonstrate that precious metals lost their safe haven properties over time as the correlation between gold/silver and U.S. stock price declines from short-to long-run horizons